MS. PERINO: First, a note for Connie Lawn, who is celebrating 40 years in
the business. And she brought treats for everybody in our office, which
you're welcome to partake in. (Applause.) Yea for Connie.

The President is currently meeting with the U.S. -- some representatives
from the U.S. Conference of Mayors. They have their meeting this week in
Washington, D.C., so the President is meeting with them, talking to them
about free trade agreements and about the economy. And you'll have his
pool remarks in a little bit. I sort of waited to see if I could wait for
him, because he's usually running early, but it didn't work, so I'm a
little bit late. I apologize for that.

Q News flash. (Laughter.)

Q Senator Reid wants the President to support a one-month extension of
FISA. Is he okay with that?

MS. PERINO: Well, the Senate has had six months in order to work on this
bill. In the letter that he wrote to the President today he said they'd
been working diligently on it. I did see yesterday that he was going to
move forward and push the bill -- try to push the bill through the Senate
this week. They have 10 days -- or about nine days now until the bill
expires, until the law expires. And we would like to see him be able to
try to get this done. He's already said he's going to try to get it
through the Senate, and then the House can pick it up.

Q To follow on that --

MS. PERINO: FISA?

Q Yes. In theory, what is so odious about keeping the current law in
place until all sides can hash out the various differences?

MS. PERINO: Well, look, there's been six months to hash out the
differences. Actually, we've been -- there's been a whole year-and-a-half
worth of hashing out the differences on this bill. And there was a robust
debate, a hardy debate back in August, when we got the bill that we have
now. We did not think it was wise to put a six-month sunset on this bill
at the time.

Over the next six months the Senate Intelligence Committee passed a
bipartisan measure that could -- that we think is supportable. We have one
thing that we could -- one part of it that we disagree with in terms of one
of the amendments -- I think the Wyden amendment is the one we've
identified. But we do believe that the Senate Intelligence bill represents
a bipartisan solution to this, and that's what is on the Senate floor. And
we believe that the Senate should be able to work through this, and we're
hopeful that they'll be able to get it done this week, as he said he wanted
to do.

Q And if they can't, then?

MS. PERINO: Well, I think that we should wait and see, and we're hopeful
that they can get it done this week.

Q Are you prepared for filibuster? Senator Dodd said today that if the
measure that emerged from all of this contained the liability protection
for telecom companies, that he would filibuster. Are you prepared for a
filibuster?

MS. PERINO: I haven't heard him say he'd filibuster, although I guess he
had said that back when he was on a campaign trail, as well. So maybe he
has re-upped that commitment. Look, we think that there can be debate on
the Senate floor, that this is not a debate that's just been taking place
the past couple of days. They've had debate since August and, prior to
that, about a year's worth of debate about this bill. So there's been
plenty of time for everyone to have their say.

And the Senate Intelligence Committee has a bill that they reported out in
a bipartisan fashion; it was 13 to 2. We can support that provision with
some minor changes, and we'd like to see them get it done this week. And
then it can go to -- and then it can -- and then that bill can presumably
be sent over to the House, and they can pass it next week, because we have
about nine days until the deadline expires.

Q Dana, do you know in the budget that comes out February 4, will the
costs of the economic stimulus be reflected in the budget deficit in that?

MS. PERINO: Yes.

Q It will be?

MS. PERINO: Yes.

Q On FISA --

Q Can we finish with the budget deficits --

MS. PERINO: The economy? Okay.

Q -- since we're on that? What do you think of this new CBO estimate
that shows the slowing economy having a pretty dramatic effect on
increasing the debt?

MS. PERINO: Well, I don't know how they come to their -- all of the
numbers at CBO. It's a little bit -- math is not my strong suit. But they
certainly have said something that we said back in July, which is we think
that there will be an increase in the deficit, a small one. And the
details of what we think in terms of deficit projections will be out in
full on February 4th once our budget comes out. What's important to note
is that we believe that that short-term increase in the deficit will be
because of the consensus that the leaders agree with that there -- we
should have a economic stimulus package.

We're going to be working towards that. But at the same time, the
President is going to continue to urge spending restraint so that we can
make sure that it's temporary and we can get back on track so we can
continue to have the benefits of the increased tax revenues that we've
enjoyed over the past few years stemming from the President's tax cuts in
2003.

The other thing I would point is that CBO announced today that they are not
forecasting a recession. The administration economists are not forecasting
a recession, but what you do have consensus on is that we need to have a
short-term shot in the arm for the economy so that we can avoid a potential
downturn.

Q Does it not worry you that the legacy of this administration is going
to be hundreds of billions of dollars of extra debt?

MS. PERINO: I think we're still on track to get a balanced budget by 2012.

Q Dana, in a press conference this morning, Senator Schumer criticized
what he called President Bush's "laissez-faire" attitude on housing and the
economy and he's --

MS. PERINO: Sorry, who is this?

Q Senator Schumer. And he said if Democrats had had their way, "things
would have been done a lot more strongly and earlier." Rahm Emanuel is
having a press conference --

MS. PERINO: I'm sorry, he's saying this about housing?

Q Let me finish, let me finish. Rahm Emanuel is also having a press
conference right now, blasting the President's economic policies. Does it
concern you that Democrats say they want to work with you, but then some of
them in the same breath seem to be blaming the White House --

MS. PERINO: Sure. And it's so typical of how many people work in
Washington, and quite unfortunate. And I think it's really ironic, if that
is an accurate quote -- and I have not seen the comments -- that they would
have done more on housing or they would have acted more quickly. It was
this President who, on August 31st, put forward a package, asking Congress
to act on it; they did nothing. And for the past year and a half, we've
asked for modernization of the Federal Housing Administration; they've done
nothing. And another Senator that was just mentioned, who had been out on
the campaign trail, hadn't even been able to hold committee votes. And so
I find it really ironic that they would suggest that this President hasn't
tried to do enough on housing, because we have.

Not only have we acted through the administration and through our executive
branch powers, trying to pick up the slack where Congress hasn't worked on
the important work of the American people, but also Treasury Secretary
Paulson and Secretary Jackson at HUD both worked together so that they
could create a private sector initiative in order to help people who are
facing foreclosure.

So we have done our part on housing. We're trying to do more, and we want
to work with Congress to get it done. The President is committed to
working in a bipartisan fashion. And I would hope that those individuals
would take a step back and realize that we have an opportunity to get
something done on behalf of the American people. But if they want to go
down that road and not work with the administration, the label of the
"do-nothing Congress" could stick in 2008 as it did in 2007.

Q Do you think this could get in the way of getting something --

MS. PERINO: I certainly -- everything that I heard from Secretary Paulson
and from the President and from the leaders yesterday is that there is a
lot of commitment to working together. It was nothing but a very good
meeting yesterday, amicable and substantive, both on the economy and on the
Middle East. And that was from -- in a bipartisan fashion.

Go ahead, Caren.

Q On the budget outlook, you released figures in December that, even at
that time, were viewed as very optimistic about the economy. I think your
projection for growth was 2.6 percent for this year. And you have several
major investment houses on Wall Street projecting a recession. Maybe the
CBO isn't projecting that, but many people on Wall Street are betting on
that. And I'm just wondering if you have any plans to revise those
figures, because they're going to form the basis of your budget outlook,
and I wonder if people are going to take them seriously if the underlying
growth forecast is --

MS. PERINO: I don't know of any plans to renew -- redo numbers. But I'm
sure that CEA Chairman Eddie Lazear is on top of things, as is Secretary
Paulson. The budget is going to come out on February 4th. But I would
also note that -- you've said that -- there might be many economists who
are forecasting a recession; there's lots of people saying lots of
different things about the economy. There's no shortage of people opining
on the issue. What I mentioned is that CBO and the White House and the
administration are not forecasting a recession, but we are facing economic
slowdown, which is why we want to have the package that we are looking for.
So if there's going to be an update in terms of the numbers, we can let
you know.

Q So does this economic slowdown or downturn or recession -- whatever
you want to call it -- if it's a slowdown --

MS. PERINO: It is a slowdown, for sure.

Q Does what you call the "do-nothing Congress of 2007"
-- do they share some of the blame for the fact that we are facing this
slowdown?

MS. PERINO: I'm not blaming anyone. But what I am saying is anyone who is
suggesting that this President should have done more on housing should not
be saying that if it is, in fact, the Congress who hasn't acted at all.
That's my point. I'm not blaming this on anybody.

Go ahead, Paula.

Q You're saying that basically $150 billion is going to be factored into
the budget. Have you set priorities in what the non-defense discretionary
spending cuts will be to balance that out?

MS. PERINO: I'll refer you to OMB. The budget comes out in about a week
and they'll have details for you.

Q And as far as the stimulus package goes, would it be accurate to say
that everything other than tax increases is negotiable, and that includes
the size and the scope of the package?

MS. PERINO: What I said yesterday remains true today, which is we are not
closing any doors, and I'm going to let Secretary Paulson have those
discussions in private because that's the best way to have a negotiation.

Q Can you talk about the part of the meeting yesterday that was related
to the Middle East and just what the back-and-forth was on that?

MS. PERINO: Sure. The President gave them quite a lengthy debriefing as
to what he heard and what he saw on his trip. He certainly talked about
foreign investment and the concern for some of the countries -- most of the
countries that he talked to that America might not be open for business,
for foreign investment. So the President talked to them about that.

He talked to them a lot about Israel and the Palestinian Territories, and
about his conversations with Prime Minister Olmert and President Abbas and
why he feels optimistic.

He talked to them a lot about how he heard in the region people's concern
about Iran. And he said that we remain committed to making sure that we
solve this issue diplomatically, and that, as you see, with the P5-plus-1,
that the world continues to agree that Iran should not have a nuclear
weapon.

And then there was some back-and-forth in regards to that. They talked
about the price of oil. And the President did say he had brought up the
price of oil with the leaders that he met with. So it was a good
discussion, a good back-and-forth.

Q Is there any policy that he's looking for from Congress this year that
relates to --

MS. PERINO: Well, not -- he didn't say so specifically. Certainly, he
will be looking to make sure that there is nothing that tries to close off
the doors to foreign investment. And that's true not just in the -- for
the Middle Eastern region, but around the world. And one of the things the
President is doing right now is talking to the mayors who are in town about
the importance of free trade agreements. Right now we're looking at
Colombia, South Korea and Panama. And when the President came in, I
believe that there were three free trade agreements on the books; now we
have agreements with 14 countries. So he's going to continue to try to
push for that.

Also, the President had heard a concern about visa policies and immigration
policies. And the President is going to just make sure that we're being
thoughtful as we think through the balance of what we have to do in this
country. We want people to be able to come in and visit our country, and
study in our country, and do business in our country -- and at the same
time, we have to make sure that we are protecting our citizens. So those
are the things we'll be looking for.

Connie.

Q Dana, thank you. To follow up on what you said about Gaza yesterday,
today the situation seems to be easing a slight bit. But does the U.S.
have any --

MS. PERINO: Say that again?

Q That the situation in Gaza is easing a slight bit today; there have
only been three rockets strikes --

MS. PERINO: I think I would disagree. Well, it's true that Israel has
helped alleviate some of the blockade problems, but the situation on the
border with Egypt and Gaza is quite serious today, and we are very
concerned about it. We have been in touch with those parties, including
many in the Egyptian government. The State Department has made those
connections, and so I'd refer you to them.

Our focus right now should be on restoring the situation. And we note that
the genesis of this problem is something I've mentioned over the past
couple of days, which is Hamas sending in -- sending over to Israel about
-- upwards of 150 rockets a day that are landing in their territory. And
so Israel is defending itself. And we think the situation is quite serious
and not alleviated at all.

Q Does the U.S. have any contact with anyone in Hamas? Is there any
pressure, direct pressure the U.S. can put on?

MS. PERINO: As you know, we've had a policy of not talking with Hamas.

Go ahead, Les.

Q Thank you very much, Dana. Has the White House seen any action by
Israel to do what we heard the President ask, to give the Palestinian
Authority back all land Israel occupied after the 1967 war? That's the
first question.

MS. PERINO: That's one of the things that -- the issue of borders and
security and settlements is going to be on the agenda when Prime Minister
Olmert and President Abbas sit down to work out and negotiate all the
details. So I'll decline to comment until they work it out.

Q So if that's an accurate description, that the President wants them to
give back all the land they occupied after 1967 --

MS. PERINO: They're going to work that out, and we'll see what they come
up with.

Q All right. Second, Agency French Presse reports that Iran has
reported that Russia has delivered the fifth consignment of nuclear power
plant fuel, bringing to 55 tons the nuclear fuel supplied by Russia so far.
And my question: Does the President believe that such deliveries actually
will bring about the conclusion of Iran's pursuit of a nuclear enrichment
program?

MS. PERINO: The President welcomed the idea that President Putin had,
which is to help provide Iran with civil nuclear power so that they could
have that power and have that access, but not be able to enrich. And
Russia stands by us on that, as well. So the President did support that
move. He does believe that all countries have a right to have civil
nuclear power.

Q Thank you.

Q Dana, on the financial literacy executive order, are you intending to
come up with some legislation after that group meets or --

MS. PERINO: I think we'll have to see, because that group is going to
provide the President with some recommendations, and from that it could be
that they would recommend some legislative changes. It's too early to say.

Go ahead, Goyal.

Q Just two questions. One, some members of Congress on the Hill are
calling that President should consider free trade agreement with India
also. I mean, President has not --

MS. PERINO: I haven't heard that, but I'll check.

Q And second, as far as the Vice President's speech this morning at the
Heritage Foundation, he called, of course, that Congress must pass this
FISA, but also he said that as far as the terrorist attack is concerned, we
did not have any major attack since 9/11, but we cannot guarantee that
there won't be another one. But my question is that he also said that we
have to flush out terrorists and punish those who are training and helping
them. Do we know where are those terrorists and who is helping and what --

MS. PERINO: We're finding terrorists around the world. That's been
obvious since 9/11 -- something we're having to confront.

Q Are we working on that?

MS. PERINO: Absolutely.

Nadia, go ahead.

Q Just to clear up on the Gaza situation. Do you see a separation
between the need to alleviate the suffering of one-and-a half million
Palestinians in Gaza and the fact that Israel has -- (inaudible) -- Hamas
as an organization?

MS. PERINO: Absolutely. We're very concerned not just for Israel and
their concerns about their security, but also we want to prevent, as well
-- and Prime Minister Olmert says he wants to prevent a humanitarian crisis
there in Gaza. The blame for this problem can be laid squarely at the feet
of Hamas. But we are going to continue to work with the Israelis and the
Palestinians -- meaning Prime Minister Olmert and President Abbas -- so
that we can make sure that the Palestinians know that they can have hope
and they can have a state, and they have a choice to make on who they want
to follow.

Q Can I follow on that just for a second? While President Bush was in
the Middle East, Secretary Rice told The Jerusalem Post that Egypt has to
do more. She said, those tunnels need to be addressed. And she said,
we're prepared to give assistance, but the will to do this is very
important. And of course, those tunnels have been a problem for quite some
time prior to the President's trip to the Middle East. Now, today, again,
the border crossings becomes an issue that lacks control by the Egyptians.
And yet, when President Bush met face-to-face with the Egyptian President,
Hosni Mubarak, the President only thanked him for his constructive support
of the Middle East peace process. What evidence is there of Egypt's
support for that --

MS. PERINO: Well, that's not true, James. He did talk to President
Mubarak -- not in the press availability, you don't have everything --

Q Not what I saw, what I was able to see.

MS. PERINO: Well, the President did discuss with President Mubarak the
need to make sure that Hamas does not have the ability to smuggle in
weapons and money into and out of Gaza. And they did have that discussion.

Q And so what evidence is there that the Egyptians have taken it to
heart?

MS. PERINO: Well, as I said, the State Department has reached out to the
Egyptians. We think this is an urgent situation and we want to restore
security. But right now, at this moment, I don't have an answer for you as
to what they responded.

Q According to reporting this morning, President Mubarak personally
approved the crossings --

MS. PERINO: I saw that reporting, too, and that's one of the things we
called them about.

Q So obviously he wasn't listening --

MS. PERINO: I saw the reporting. I don't know what Secretary Rice and her
team -- I'm sorry, I didn't hear your last part?

Q I said I don't -- it's clear he wasn't listening if they did talk
about it.

MS. PERINO: Well, let me wait and see what the State Department has. They
are the ones who have been in contact with the Egyptians.

Q Any reaction to that study out from the Center for Public Integrity
and the Fund for Independence in Journalism, where they did what they
called a count of hundreds of false statements made by the President and
top administration officials regarding the threat posed by Iraq -- and they
counted in the two years after 9/11 --

MS. PERINO: I have to think that the study is worth spending any time on
-- it is so flawed in terms of taking anything into context or including --
they only looked at members of the administration, rather than looking at
members of Congress or people around the world. Because as you'll
remember, we were part of a broad coalition of countries that deposed a
dictator based on a collective understanding of the intelligence.

And the other thing that that study fails to do is to say that after
realizing that there was no WMD, as we thought as a collective body that
there was, that this White House, the President set about to make reforms
in the intelligence community to make sure that it doesn't happen again.

Roger.

Q On Friday, the President's remarks to House Republicans in West
Virginia, can you give us a preview of what topics he's going to cover?

MS. PERINO: Well, there's going to be a lot of different topics.
Obviously economy is going to be front and center. This is a meeting, as I
understand it, that House leaders put together to talk about the coming
year, so it's quite broad-based. I think he will talk about FISA and
trying to get that passed through the Senate and the House before the
deadline expires on February 1st. He will certainly talk about, as I said,
the economy, war on terror, possibly health care. I think that I need to
wait until we get a little bit closer. Let me look at it tomorrow.

Q Kind of a legislative agenda from --

MS. PERINO: Yes, a little bit, sure. And then, of course, the other thing
the President does, he doesn't just talk at them the whole time; he allows
them to ask a lot of questions, too.

Q We'll be in there for that, too?

MS. PERINO: The question and answer? I don't think so. (Laughter.)

Q We'll get to talk at him, won't we? (Laughter.)

Q How about just the answers? (Laughter.)

MS. PERINO: And you can guess the question?

Okay, go ahead.

Q Some of us can do the questions and some of us can do the answers.
(Laughter.)

Q Regarding the removal in North Korea from the list of terrorist
states, what is the United States government -- (inaudible) --

MS. PERINO: Well, regarding whether or not North Korea will be removed
from the State Sponsor of Terrorism list, first and foremost, the ball is
in North Korea's court right now. The agreement that we made with them is
that there would be actions for actions. And right now, we are waiting on
North Korea to release -- or to give to us their complete and accurate
declaration of all of their nuclear activities, including proliferation
activities. We don't have that yet from them; therefore, there's not any
movement on any of the other parts of the agreement. So that's where we
are right now. The ball is in their court. We are waiting for them.

Q That answer suggests, Dana, that the decision about whether to remove
North Korea from the terror list is contingent on a quid pro quo, rather
than on the merits of whether they should be on the list or not.

MS. PERINO: That's not what I was suggesting. So -- of course, there's a
lot of factors that go into the President's decision as to whether or not
to remove a country from the State Sponsor of Terrorism list. But where we
are right now at this moment is waiting for North Korea to give to us their
complete and accurate declaration that they said they would give to us last
February.

Q So you're not concerned, for example, about the prospect that North
Korea was proliferating with Syria --

MS. PERINO: I said that all of those activities -- nuclear activities,
proliferation, et cetera, and I'm not commenting on anything specific, but
all of those activities have to be disclosed.

Q They're not anywhere close to being removed, then?

MS. PERINO: I would say it's definitely not imminent. And so we need to
have that declaration before we could even talk about any next steps.